Recruiter’s View

Investors are betting Engineering and Construction will improve.  Are lagging stimulus projects ready to surface?

I’ve had a hard time figuring out how to convert one of the biggest statistics in employment into something we can actually use.

I came close last year, but I got faked out.  

The single fastest growing employer in the U.S. is the Federal Government.

I think we all know how excited I am about that.

But how can we make money off it?

A number of my readers report excellent earnings from easy federal engineering contracts. In a way, that is good news, but I’m looking for something broader and more accessible.

STIMULUS MONEY – I had gone public with projections about the “Shovel Ready Stimulus Package” announced last spring. I called for that surge to arrive between September and November last year. In fairness, that is about when it started to show up.

The difficulty: The numbers were puny.

The Department of Energy spells out its view on a web page titled Recovery and Reinvestment.

Of the $36.7 billion allotted to this department last year, a whopping $2.1 billion has now been spent. If you haven’t noticed a rush of new jobs coming in from the government funding of energy projects, that might be one reason why.

It’s possible that some 90% of government money hasn’t made it through the pipeline yet.

Here’s the breakout they’re showing right now:
$4.0 billion of loan guarantees is not included in the reporting.
$32.7 billion is in the reporting.
$25.1 billion has been awarded.
$2.1 billion has been spent.

At least $30 billion of money – just for energy related projects – has not made it into our economy yet.

THE GOOD NEWS – Existing and future demand for engineering and construction is beginning to influence trading strategies for investors in the stock markets.

In his February 2 broadcast (available on iTunes), Jim Cramer outlined his analysis of who would most benefit from Federal spending. His answer: Engineering and Construction companies.

He locked in on URS – a mostly domestic company – because 91% of their revenue comes from the U.S. (43% comes directly from Federal Government contracts.) As a trade, he picked them over Fluor, Jacobs, and Shaw. Those companies get a lesser 55% to 78% of their income from the U.S.

Cramer pointed out that URS’s strength is in Obama favored industries, including environmental services, military and technical services, training operations, maintenance, and nuclear site management.

As a trade, Cramer pointed out the advantage that engineering services are front loaded. They generate profits immediately. Construction is the bonus that occurs years later.

WE ALSO SEE IMPROVEMENT – That certainly rings bells for me. When the larger companies land construction contracts, it’s almost a certainty that they will expect to offload much of their technical work. On the receiving end, there are many small engineering firms that are very nearly dependent on whatever the big guys leave behind. Some of them are underfunded and understaffed.

I know that all of the big names are trading reasonably well on the markets. But equities markets are forward looking.

The problem today is, most engineering companies are doing a massive amount of bidding without getting much back for results.

Their earnings show that. As old projects wind down, new projects just aren’t coming on line to take up the slack.

These leaders have cut back in big ways. And cuts are even deeper for the small engineering companies that provide specialized sub-contracting services. It’s not difficult to find firms shrinking by 20% to 30% from a year ago. Some, who were overextended, have cut staff by 50% or more.

Part of that is the nature of the industry. Some of it comes from wicked behavior in Washington.

Nevertheless, when the work we’re engaged in becomes the focal point for big time investors, I’ve got to believe good things will follow.

Recruiter’s View – We have very encouraging confirmation, here. I realize that Cramer is scrambling, trying to find positive investment ideas in a very ugly market. But I also have to recognize that I had written off the stimulus projects as lost or stolen.

Without government interference, there is real work to do. Bringing in the government, tens of billions of additional dollars may also be on the horizon. According to people who eat and breathe these numbers, this all adds up to a good place to invest your money.

On positive advice like that, I’m getting more enthusiastic. Certainly, I’ve been seeing upticks in my activity; and that forecasts a better economy and more jobs. Despite the layoffs I described, there are not all that many good engineers who are readily available if we get hit with a surge of new work.

Employers have not been carrying spare employees, just hoping that things will turn up.  As business continued to drop off, companies kept getting smaller.  With ISM numbers at last indicating that manufacturing is finally going positive, I foresee an interesting little scramble coming as companies inevitably have to restaff.

During 2010, I’m convinced I’ll have employers telling me they can’t find any engineers.

Bottom line: We’re all in a good place to earn some money.  It’s OK to turn on the spigot!